An investigation on the impact of sound operational risk management on the performance of financial institutions: a case for Zimbabwean banks

Abstract

The banking system has evolved over time and in the process new products, systems and services have been introduced. Technology has played a key role in shaping the banking system. New products have been launched to improve the banking system and mainly to bring cheap and more efficient products. Operational risk management has gained prominence due to the increased number of financial scandals in the financial industry (Walter 2013). Although the risk of fraud and external events has been in existence long back, the possibility that operational risk might arise has also increased due to the recent technological advancement. This research is an investigation on the impact of sound operational risk management on the performance of Financial Institutions in Zimbabwe: A case for Zimbabwean Banks. The Operational risk factors that the researcher used include Internal Fraud; External Fraud; Employment Practice and Workplace safety; Clients product, Business Practices; Damage to physical assets; Business Disruption and System Failure and Execution, Delivery and Process Management. The main objective of the study is to investigate the impact of sound operational risk on the performance of financial institutions in Zimbabwe. To achieve the objectives, the researcher adopted an explanatory research design, in order to determine the relationships between variables. Primary data was used for the research and it was collected from 234 bank employees from the 18 banks. Data was collected through online questionnaires and self-administered questionnaires; data was analyzed with SPSS using regression to determine factors that were significant to the research. The research results indicate that Internal Fraud and Execution, Delivery and Process Management have a positive impact on financial loss which affects the profitability of banks and hence bank performance. Therefore, management should invest in reducing internal fraud and focus on enhancing execution, delivery and process management. Keywords: Operational risk, Technology, Business Disruption